E711 Making Decisions Involving Constrained Resource LO 7277

E7-11 Making Decisions Involving Constrained Resource [LO 7-2,7-7] Cordova manufactures three types of stained glass window, cleverly named Products A, B, and C. Information about these products follows Sales price Variable costs per unit Fixed costs per unit Required number of labor hours Product A $46.00 22.00 8.00 1.50 Product B $56.00 12.25 8.00 2.50 Product C $86.00 38.00 8.00 4.00 Cordova currently is limited to 50,000 labor hours per month. Required Assuming an infinite demand for each of Cordova\'s products, determine contribution margin per direct labor hour. (Round your answers to 2 decimal place.) Contribution Margin ProductA Product B Product C CM per DL Hour CM per DL Hour CM per DL Hour Which product would be Cordova\'s first choice to produce? Product A Product B Product C

Solution

Hence Product B must be the first choice having highest CM per DL Hour.

	A	B	C
Contribution margin per unit(Sales-Variable cost)	(46-22)=$24	(56-12.25)=$43.75	(86-38)=$48
Contribution margin per labor hour(Contribution margin/Required number of labor hours)	(24/1.5)=$16	(43.75/2.5)=$17.5	(48/4)=$12